Business

Difference Between Member-Managed and Manager-Managed LLC – What You Need to Know.

By August 4, 2021 No Comments

 

 

By Cooper Eisinger.

When forming your new limited liability company (“LLC”), one of your first tasks is to decide whether it will be a “member-managed LLC” or a “manager-managed LLC.” In a member-managed LLC, all members (owners) of the LLC actively engage in the day-to-day operations of the LLC and run the LLC. In a manager-managed LLC, members of the LLC choose to assign the task of managing the company and its day-to-day operations to one particular person or to a team of individuals who then run the LLC.

Member-Managed LLC:

A member-managed LLC is the most common choice when setting up an LLC. Most LLCs are small businesses and do not have many members (or shareholders) in the same way a corporation does. Therefore, it is easier to have the members themselves run the LLC and not hire outside managers or even designate only a certain group of members to run it. Moreover, in this LLC structure, the members can play an active role in managing the company and have a direct say on the direction of the LLC.

For example, if you and your business party decided to start an LLC for a construction company, it would be easier to make it a member-managed LLC, since it would only consist of you two. Each member in the construction company would have an equal say on the direction of the LLC and decisions could be streamlined between the two of you.

Manager-Managed LLC:

A manager-managed LLC is less common and usually reserved for companies who have unique scenarios where decision-making is better delegated to a select member(s) or an outsider(s).

Take the construction business example discussed earlier, but now imagine your business partner knows nothing about construction. However, your business partner wants to invest in the LLC to diversify his portfolio. Your business partner may be more inclined to be a “passive investor” in the LLC and would rather you manage the day-to-day operations while he provides the capital. This is an example where a manager-managed LLC would be more practical since you know how to run a construction company and your business partner does not but has the capital that you do not have.

Another scenario where a manager-managed LLC may be preferable is when the business itself is too large or when there are too many members in the LLC to efficiently manage the company among all members. In this scenario, it is better to appoint a manager (this could be one or more members of the LLC or a non-member) who runs the day-to-day and keeps the company running efficiently.

When you are starting your LLC, make sure you go through your business model and consult with the other members to see which LLC structure is best for you. If you need assistance creating your LLC or seeing which structure is best for you, contact attorney Eduardo A. Maura at eduardo@ayalalawpa.com to see how we can help you start your business or call 305-570-2208.

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